Why HUL Share Price is Falling

Fast-moving consumer goods (FMCG) stocks are trading in the red despite the retail inflation figures for March 2024, coming in at a 10-month low. Rising geo-political tensions following Iran's direct attack on Israel over the weekend appear to have roiled the markets.

On Saturday, Iran launched hundreds of missiles and drones at Israel in a retaliatory attack, according to a report following a suspected strike by Israel on its consulate in Syria.

HUL tanked 1.7% on Monday.

This isn't just a one-day blip for Hindustan Unilever (HUL). The stock has been on a downward spiral for the past three months, falling 13.9%.

Let us dive into what is dragging HUL down.

#1 Price Cuts

The competition for wealthier customers comes as the maker of Dove soaps and Magnum ice cream has also had to offer price cuts for its cheapest brands due to a pullback in spending among the poorer, rural consumers.

That is squeezing the company at both ends, which is often seen as a bellwether for consumer spending in India, with its household products sold in every nook and corner of the country.

The company's revenue grew 3% during the first nine months of the financial year through to December, down from 17% growth in the year-ago period. Likewise, net profit growth is sagging, increasing only 4% to Rs 77 billion (bn) for the nine months ending December 2023, compared to 14% growth in the same period in the previous year.

The consumer goods maker, meanwhile, spent Rs 48 (billion) bn on advertising and promotional costs in the April to December period, up from Rs 36 bn during the same time last financial year.

The company has long benefited from its entrenched on-the-ground supply chain that can fill up shelves at mom-and-pop stores, as well as supermarkets across the country.

Hindustan Unilever is also struggling to offer new products in the premium segment that create a market buzz.

Consequently, the company's shares are experiencing a downward trajectory as investors react to the subdued financial performance and uncertainties regarding its ability to effectively navigate the evolving consumer landscape.

#2 Tapping Influencers

As its new-age competitors leverage targeted marketing strategies, including collaborations with social media influencers to promote their brands, Hindustan Unilever finds itself lagging in this aspect.

While its personal-care brands like Simple or Love, Beauty and Planet have made strides in gaining social media presence in recent years, their follower counts remain comparatively modest, with each brand amassing fewer than 92,000 Instagram followers, for instance.

In stark contrast, competitors such as Mamaearth, a personal-care brand under the umbrella of newcomer Honasa Consumer, boast a significantly larger online following, with over 1.3 million (m) followers on the platform.

The disparity in social media influence underscores Hindustan Unilever's challenge in effectively engaging with key demographic groups and harnessing the power of digital platforms to amplify brand awareness and drive consumer engagement.

This is further dragging the stocks down.

#3 Recasting Businesses

Despite Hindustan Unilever's efforts to revamp its body care product offerings and implement specialised marketing strategies through the divisional split of its personal care segment, challenges persist as it faces mounting competition from agile contenders.

While over 80% of the company's product lines show either growth or sustained brand recognition among consumers, the pressure to maintain its dominant position in the Indian market remains formidable.

The premium beauty business unit, established three years ago, demonstrates promise by generating over a billion rupees in annual recurring revenue.

However, the landscape is evolving rapidly, with nimble competitors offering a diverse array of options to consumers while simultaneously providing lucrative opportunities for retailers.

This shifting dynamic is evident in the changing composition of shelves, as retailers opt to stock fewer Hindustan Unilever personal-care products in favour of local and foreign niche brands.

The company's inability to effectively counter this trend contributes to the downward trajectory of its bluechip stock.

#4 Weak Sectoral Outlook

As input prices, which were benign for a few quarters, turn inflationary, the spectre of shrinking packs looms large within the fast-moving consumer goods (FMCG) segment.

This summer has seen the trend make its way back, albeit slowly, and in select categories. Companies have been cautious when reducing pack sizes, describing the move as a way to democratise consumption and tap into newer consumer segments.

This shrinkflation could grow as companies begin to feel the pinch of rising raw material prices on margins. Key inputs such as crude oil, palm oil, coffee, cocoa and sugar have seen a sharp surge in their prices in the March quarter. This inflationary trend may continue into FY25.

While companies are expected to be cautious with price hikes to avoid hurting volume growth, gram per square meter may take a hit, further dragging HUL down.

What Next?

India's personal-care sector is estimated to become a US$ 33 bn market by 2027 from US$ 20 bn in 2022.

Going forward, HUL is exploring the option of turning its ice cream business into a separate unit in possible preparation for the eventual sale.

This is because the ice cream business has an inherently different business model, including a cold-chain go-to-market operating model, seasonality, and a different innovation rhythm compared to the rest of Unilever's business.

HUL's total revenue from operations in FY23 stood at Rs 591.4 bn, of which the ice cream unit contributed about 3%.

Unilever has also announced plans to cut 7,500 jobs globally as part of a new programme that's expected to save it about € 800 m over the next three years.

This provides HUL with crucial fuel for growth, allowing us to invest competitively behind our brands and future capabilities.

How Shares of HUL have Performed Recently

Over five days, HUL shares are trading lower by 1.6%. It has lost 12% in past six months.

The company touched its 52-week high of Rs 2,769 on 7 July 2024 and its 52-week low of Rs 2,172 on 16 April 2024.

About HUL

HUL is India's leading Fast Moving Consumer Goods (FMCG) company with a diverse product portfolio including soaps and detergents, personal care products, and food and beverages.

For more details about the company, you can have a look at HUL factsheet and its latest quarterly results on our website.

For a sector overview, read our FMCG sector report.

You can also compare HUL with its peers.

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